Weekend Reading – High-savings rate edition
Welcome to some new Weekend Reading: the high-savings rate edition.
You can check out other recent editions and past popular articles below:
Here are some interesting financial predictions for 2022 – including some doom and gloom ahead!
I recently wrote about my plan to fight higher inflation. You should be prepared too!
This millennial has accummulated $1.5 million in net worth, in his mid-30s. See how he got there including investing in some exotic assets!
Enjoy these reads about some high-savings rates by some investors and much more to put us in a better place for our financial future.
Have a great weekend!
Mark
High-savings rate edition
Another Loonie put the pedal down when it comes to saving and investing. From the article:
“Overall we contributed $64,300 to our registered investment accounts in 2021, which is an insane amount for us. As you may know, our focus is to max out our TFSAs as soon as we can, so the majority of our contributions were to those two accounts.”
This is a good time to remind you that with any savings you do have, focusing on maxing out your TFSA over your RRSP should likely be a focus for you too.
Why?
Managing the RRSP-generated refund is the linchpin in any RRSP vs. TFSA debate.
Tawcan also has an incredible savings rate to grow his dividend income by thousands each year. Based on his December 2021 update he and wife now earn from each account:
- “RRSP: $10,996.94 or 35.6%
- TFSA: $9,122.02 or 29.5%
- Taxable: $10,793.24 or 34.9%”
Via Rob Carrick’s Carrick on Money newsletter (subscription), I found this article rather interesting for younger investors – a retirement expert offering advice to millennial and GenZ. Among the expert’s to-dos and tips in summary:
- “Managing cash flow is everything.”
- On FIRE: “If you do plan to leave your job, one thing to note is that the size of your emergency savings needs to be inversely proportional to your certainty of income.” That has long-aligned with my thinking about how much cash should you keep.
- On inflation and asset classes to hold: “Real estate is a really good one. Commercial real estate held up pretty well with inflation. It might be a good time to diversify. As the economy transitions a little bit and we figure out what cities look like, there will be some opportunities there. I’m sure commercial property prices have fallen. Eventually residential is going to correct and nonresidential will become more attractive with an eye toward inflation…. If you haven’t been rebalancing because you’ve been riding the U.S. stock market, now may be the time to do it.”
I like real estate in my portfolio beyond my primary home but I think you should be cautious – don’t overrotate on RE inside your investent portfolio. I think 5-10% in REITs is good.
How much real estate should you have in your portfolio anyhow??
A Purple Life highlighted how she spent just $20,415 (USD $$) in 2021 as a US Nomad in 2021 – shared expenses with her partner of course. That’s still incredible and cheap.
Our spending is much higher now but will remain higher than that even semi-retirement largely because we have a home – which is an expense:
| Key expenses | Monthly | Annually | Semi-retirement comments ~ end of 2024??? |
| Mortgage | $2,240 | $26,880 | We anticipate the mortgage “dead” before the end of 2024. |
| Groceries/food | $800 | $9,600 | Although can vary month-to-month! |
| Dining/takeout | $100 | $1,200 | |
| Home maintenance/expenses | $700 | $8,400 | Represents 1% home value per year, increasing by inflation. |
| Home property taxes | $500 | $6,000 | Ottawa is not cheap, increasing by inflation or more. |
| Home utilities + internet/TV/cell phones, subscriptions, etc. | $400 | $4,800 | |
| Transportation – x1 car (gas, maintenance, licensing) | $150 | $1,800 | May or may not own a car long-term! |
| Insurance, including term life | $250 | $3,000 | Term life ends in 2030, will self-insure after that without life insurance. |
| Totals with Mortgage | $5,140 | $61,680 | Mortgage dead in 2.5 years… |
| Totals without Mortgage | $2,900 | $34,800 | As you can see, once the debt is gone, we’ll be in a much better place for financial independence! |
Add in other spending/miscellaneous spending to the tune of $1,000 per month and that’s our budget, maybe, possibly, could be!!??
Thoughts??
Reader question of the week (adapted for the site):
Hi Mark,
I have appreciated reading your material I receive. I will spare you my long story as like any number of people, have had lots of ups and downs in life but I do have a question for you. I want to reduce my taxes for last year down to zero if possible. I have lots of RRSP contribution room, so thinking I would put $10 – 15 thousand into this. After the money is contributed, I’m looking for something that might earn money, but not too risky as it would be for the short-term until after a year of turning 71. Thoughts?
Thanks for your email.
I’m not in a position to offer any tax advice, certainly not even any detailed next steps without knowing the full extent of your situation but I will say there are some tips to reduce your taxable income in any given year – you’re definitely on the right track related to RRSP management. Not sure if any of these apply to you but here is a list of “starters” for you:
Contribute to a spousal RRSP – since you can even out your future income is by making contributions to a Spousal RRSP, where the higher income spouse contributes to the lower-income spouse’s RRSP.
Split pension income – with lower income spouse or partner.
Withdraw any assets in the right order – be tax-efficient. Meaning, the tax implications in any given tax year will depend on the type of withdrawal from what account, in what order. In our work with clients at Cashflows & Portfolios (where we provide low-cost portfolio draw down options and retirement projections for Canadians), we often see a “slow draw down” of RRSP and/or RRIF assets to be very beneficial in smoothing out taxes while retirees are receiving CPP and OAS benefits in their 60s and 70s. I think a general rule of thumb is to use your least flexible sources of income first in your retirement income drawdown order:
- RRSP/RRIF assets first, or equally draw down any Life Income Fund (LIF) assets first,
- Make non-registered withdrawals (if you have those assets) second for your income needs,
- Keep *TFSA withdrawals “until the end” while receiving maximum (age 70?) both CPP and OAS inflation-protected government benefits.
*Another option (because there is no upper age limit to TFSA contributions) is to keep contributing to this TFSA account in retirement. Alternatively, you can withdraw money from this account for reducing taxes in any tax year striving to get your taxes to near zero. While TFSA contributions aren’t tax deductible, the income and gains made in the TFSA grow tax-free and money can be withdrawn tax-free. So, any money you withdraw from your TFSA in retirement is not taxable, so that income won’t impact your tax bracket or marginal tax rate. That means after you take into account the basic personal amount tax exemption (BPA) (a non-refundable tax credit that can be claimed by all individuals), you might pay close to zero tax!
Lastly, more to your point, yes, RRSP contributions can reduce taxes owing in any tax year. Contributions to an RRSP means you can deduct the amount you contribute from taxable income when filing your taxes. This means potentially paying less tax and saving more money of course.
Deciding on what to invest inside an RRSP can be tricky but certainly if you are concerned with equity market risks this year, potentially a more balanced ETF or even an ETF with a bias to bonds over equities could be an option for you if you are worried the stock market may go down or sideways for some time.
I have my personal, favourite list of simple all-in-one ETFs here, including the ones that are balanced or more conservative to your risk tolerance comment.
In closing, these are of course just some general thoughts off the top of my head, but I hope they helped you out a bit.
Keep the reader questions coming my way – I try to answer as many as I can on the site!
Speaking of the RRSP – here is pretty much everything you need to know about the RRSP and this year’s RRSP contribution limit.
Other Weekend Reading…
In case you missed it, Cut the Crap Investing shared an investment battle underway this year that will likely impact 2022 returns…
My friends over at Stocktrades.ca highlighted a few Canadian REITs to own in 2022. I liked CAR.UN in particular from their list (I own it) because they are many times larger than their closest residential REIT competitor and they also operate beyond Canadians borders – built-in diversification.
Dave from Accidental FIRE continues to offer some interesting reading material – including how he stumbled upon semi-retirement and continues to evolve.
“If you’re not a regular reader you may not know that I used to be obese and unhealthy in every way, but now firmly ensconced in middle age I’m the healthiest and fittest I’ve ever been in my life.”
Great work Dave, and I hope to accomplish some of the same – become more fit – as I try and work on my goals for 2022.
The Dividend Guy higlighted some stocks to own for 2022. Video below with Mike sipping wine…
My Prudent Life highlight some of his favourite ETFs for his TFSA. A smart list overall for diversification.
Passionate dividend investor Matt Poyner who runs Dividend Strategy highlighted last week how he personally uses the Beat the TSX (BTSX) strategy in his own portfolio. He was inspired by David Stanley, the founder/creator of BTSX – Matt interviewed David in this gem here:
An interview with the creator of Beating the TSX, David Stanley
Save, Invest, Prosper!
As always, check out my Deals page.
Have a great weekend!
Mark
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.
Hi mark, I know your preference is to invest in dividend paying stocks and low cost index etf’s as am I , however I have been intrigued by some active companies such as Mawer and more recently horizons- what is your opinion of them?
Big fan of Mawer and their balanced fund in particular Ron. I think I have kept that fund/product on my Just Starting Out post for a reason.
https://www.myownadvisor.ca/just-starting-out-how-to-get-started-with-investing/
MAW104 has been GREAT to long-term investors.
I’m also a fan of the Horizons’ funds but don’t own any, yet!
https://www.myownadvisor.ca/tax-efficient-investing-horizons-etfs/
Thoughts?
Cheers,
Mark
We are trying to cut spending for the start of the year. I made a much smaller contribution to our EQ savings account than desired. We had some unexpected water damage in the second half of the year that used up all of our discretionary savings (other than EQ – trying to treat that as untouchable). Plus Christmas. It won’t take long to get back on track but the grocery bill has been a bit challenging! Over the holidays I defrosted our 21 cu. ft. Freezer. It’s a good exercise to take stock! I’m on a mission to use up what we have in the hopes some better sales will come in the future.
In the meantime trying to sort out RSP contributions. I have a lot of capital gains so I’ll be looking to contribute only what it takes for us not to pay extra this year.
I think keeping some cash this year, to invest, when market calamity hits could be smart James.
Sorry to hear about your unexpected water damage…not fun I’m sure!
Capital gains are a good form of taxation and likely a good thing to incur strategically 🙂
Keep me posted on your progress!
Mark
Taking about high saving rate, I think for 2021, our saving rate is more than 60% of our take home money. That’s pretty insane. But I didn’t see we could travel soon.
I always think if one an max out RRSP, TFSA and RESP (if you have kids) every year, that’s already lots of money to save. If one also invest properly, a comfortable retirement should be pretty easy to achieve. But of course not everybody can do that, and I know we are lucky to be able to do so.
This year not max out RRSP yet. Still not make up my mind what to do.
To report on my experiments with CM options. I will just ignore commissions. My 200 shares of CM in RRSP accounts are called away Jan. 21 at $150. The close price of CM is $160.13. For each share, I collected $3.75 call premium, and in my taxable account, I used margin to sell put and collected $7.35. It’s $150 + $3.75 + $7.35 = $161.1. So it’s almost a wash.
Will I continue to do this? I feel it’s lots of trouble without significant benefit. So for now maybe not. But considering I might have too much RRSP, this does have some tax benefit. With CM, I have almost the same amount of money, but part of it now is capital gain and I pay capital gain tax which is half of RRSP withdrawal. It’s almost like I withdraw $1400 from my RRSP but pay only half the tax. The precondition, of course, is I have enough buying power in my taxable account to sell the puts.
May, that’s incredible = “…I think for 2021, our saving rate is more than 60% of our take home money. That’s pretty insane. But I didn’t see we could travel soon.”
So, you should be in great shape financially for your retirement. More money than to spend!!
If folks can, for sure, max out TFSAs, (if kids) then RESPs, then RRSPs in that order I believe.
We’ll max out our RRSPs in 2022. They are maxed now. TFSAs are done for 2022 already.
Interesting stuff on the calls and puts. I haven’t bothered since it seems a bit time consuming and I figure I can put more energy into my blogs/business and earn just as much.
Do you think you will continue with calls and such?
“Too much RRSP” is a great problem to have overall. If you don’t want some, you can send some funds to me :))
Mark
May not continue selling calls. Too much work.
With RRSP, my problem actually really is when to retire. I have said we don’t want to pay down payment for my kids. But if we continue to work, maybe we will. I know housing is primarily for consuming, not investment. But nonetheless, it’s still investment at the same time. Considering money in a primary residence is growing tax free, it’s a good investment. If we are capable, then paying down payment for the kids will be better than leaving money to them when we die. It’s a booster for the kids to start their life a little bit easier.
Yes, money in a home is growing for most Canadians like bonkers….rate hikes coming. That’s a good thing. Very overdue in my book!
I have no doubt based on what you have shared with me your kids will have a good inheritance – if that’s your plan!
Mark
My plan actually is to help them to be well educated independent person who can support themselves and don’t need any inheritance from us. I am always against the idea that parents sacrifices their financial safety to support their kids.
But I know consuming habits are very difficult to change. If we have been frugal all our life, it’s not likely we suddenly will be able to spend a lot. The evidence is quite obvious: although our income have been increased quite a bit for past few years, we didn’t really spend much more. The only thing increased is saving rate. So most likely we will have some spares. In that case, giving kids money when they most needed it would be better than an inheritance.
My wife and I are with you May. We will do everything we can to empower our two children to be self sufficient.
Having said that as the recipient of a modest inheritance and life insurance from the passing of both my parents in 2019 I did realize that had I received a smaller sum years earlier it would have been more impactful. With that in mind, while I can’t see us gifting down payments for million dollar homes, I do want to be able to do things that will give them a leg up and “give with warm hands” when it makes sense for us and when it can make a difference to them.
You said better than me: to do things that will give them a leg up and “give with warm hands” when it makes sense for us and when it can make a difference to them.
@Mark, I think one cannot and should not spend all as nobody knows when they would die. So basically most people will get some inheritance, I think most likely including you. Maybe a small one. Ideally, I want to have enough money while to keep my inheritance to be a small one. Don’t want to die on a big pile of money for sure.
That’s fair. I’m not banking on any inheritance at all but there will likely be some from my parents, maybe.
When it comes to our plan, we are essentially trying to “die broke” around age 100 not including real estate assets. I figure we have to live somewhere.
Well put and I would agree: “I am always against the idea that parents sacrifices their financial safety to support their kids.”
I think as long as parents don’t jeopardize their own futures, they can gift all they want though.
I know my parents are going to “spend it all”!!!
Mark
Mark……Thanks for this information and I appreciate. The helpful comments made. Can you tell me can you contribute to a Spousal RRSP and split pension income at the same time?
Thanks Barry
Thanks for the kind words Barry.
The way I see it, not tax advice, if you are the recipient of the pension and are 65 or older, you may split income from your RRSP, RRIF, life annuity, and other qualifying payments – here is a short list for income splitting:
Income from a registered pension plan (RPP)
Annuity payments purchased through a Registered Retirement Savings Plan (RRSP)
Income from a Registered Retirement Income Fund (RRIF)
Annuity payments purchased through a Deferred Profit Sharing Plan (DPSP)
Taxable benefits from a Pooled Registered Pension Plan (PRPP)
Life annuity from a retirement agreement
So, if you want to contribute to a Spousal RRSP, while splitting other income sources above, I see no reason why not off the top of my head 🙂
Have a great weekend,
Mark
Really appreciate the share, Mark! Thanks a lot.
BTW it looks like you’ll be sitting real pretty once that mortgage is paid off. Only $2,900 in monthly expenses makes retirement oh so easy when you’ve got handfuls of dividends coming in each month!
Ya, those are basic expenses. We’ll have other discretionary spending like entertainment, etc. so I would put more realistic semi-retirement expenses in the range of $4,000-$4,500 per month after tax. We want our dividend income stream from key accounts (RRSPs, non-reg) to cover almost $4,000 of that in our early 50s for semi-retirement; re: live off dividends.
Then we’ll know we have our enough number.
Keep up the outstanding savings rate. My goodness that’s a bundle!
Mark